China in a dollar trap

Weeks after China has expressed concern about the safety of the dollar as a worldwide reserve currency, the Chinese are back but this time claiming the greenback seems inescapable. The Chinese officials can’t seem to find elsewhere to park their reserves but in the US Treasury market which is big and liquid enough for them.

“Because of the sheer size of its reserves Safe [China’s State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars,” said a western official, who spoke on condition of anonymity.

While neutral on the Australian dollar and the euro, they view the pound negatively.